Correlation Between Leading Edge and Graphite One

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Can any of the company-specific risk be diversified away by investing in both Leading Edge and Graphite One at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Leading Edge and Graphite One into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Leading Edge Materials and Graphite One, you can compare the effects of market volatilities on Leading Edge and Graphite One and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Leading Edge with a short position of Graphite One. Check out your portfolio center. Please also check ongoing floating volatility patterns of Leading Edge and Graphite One.

Diversification Opportunities for Leading Edge and Graphite One

0.15
  Correlation Coefficient

Average diversification

The 3 months correlation between Leading and Graphite is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Leading Edge Materials and Graphite One in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Graphite One and Leading Edge is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Leading Edge Materials are associated (or correlated) with Graphite One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Graphite One has no effect on the direction of Leading Edge i.e., Leading Edge and Graphite One go up and down completely randomly.

Pair Corralation between Leading Edge and Graphite One

Assuming the 90 days horizon Leading Edge Materials is expected to under-perform the Graphite One. In addition to that, Leading Edge is 2.11 times more volatile than Graphite One. It trades about -0.04 of its total potential returns per unit of risk. Graphite One is currently generating about -0.01 per unit of volatility. If you would invest  59.00  in Graphite One on September 5, 2024 and sell it today you would lose (3.00) from holding Graphite One or give up 5.08% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Leading Edge Materials  vs.  Graphite One

 Performance 
       Timeline  
Leading Edge Materials 

Risk-Adjusted Performance

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Over the last 90 days Leading Edge Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.
Graphite One 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Graphite One has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Graphite One is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Leading Edge and Graphite One Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Leading Edge and Graphite One

The main advantage of trading using opposite Leading Edge and Graphite One positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Leading Edge position performs unexpectedly, Graphite One can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Graphite One will offset losses from the drop in Graphite One's long position.
The idea behind Leading Edge Materials and Graphite One pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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